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  • Writer's pictureChris Stein, CFP®

Social Security Trust Fund

What Is The Social Security Trust Fund?

As the politicians begin to talk more frequently about the Social Security situation for Americans we are hearing more and more about what is called the “Social Security Trust Fund”.  The Social Security Trust Fund (SSTF) was originally created in 1939 and eventually turned into two separate trusts, the Old-Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund.  All SS payroll taxes are deposited into these funds, and all SS benefits and expenses are paid from these funds.  In years when more deposits are made than withdrawals, the surplus is invested in special Treasury bonds that are issued specially to the Social Security system.  These trust funds have been growing ever since 1984 when Congress enacted changes to the system designed to build up surplus funds in the trusts in anticipation of the huge benefit obligations to be paid to the baby boomer generation.  Currently there are about $2.8 TRILLION in the combined trust funds!  Sounds like a lot, but this surplus is expected to be gone by about 2033, at which time the system will only be able to pay out about 78% of promised benefits.  With 2033 now less than twenty years away we are seeing more serious talks about what to do to avert this situation.

Social Security – The Next 20 Years

Now that we understand the mechanics of the current situation, let’s talk about what the trust fund will face over the next 20 years.  Most everyone will agree that having benefits cut over 20% when 2033 rolls around is not an attractive plan.  Plus, even if nothing is done before 2033 there are still ramifications to this situation.  Remember those Treasury bonds that the trust funds hold?  They are going to be cashed in with increasing frequency as the years go by, causing the US Treasury to have to look elsewhere to borrow the money.  As we all know, the Treasury does not have the money just lying around so in order to payback this debt to the SS system they will have to borrow the money elsewhere.  This could be problematic if the US finds it harder and harder to find willing “lenders” to support our annual deficits and overall debt levels.

Saving Social Security

Saving the SS trust funds really comes down to two simple choices.  Put more in, take less out, or some combination of the two.  Of course I am being sarcastic when I say it is “simple”.  As with anything political the devil is in the details.  Who pay more in?  Who gets less out?  Who gets hurt?  Who gets protected?  These are all questions that must be answered, and the sooner the better.  The longer we wait, the more drastic the adjustments that will have to be made.  If we take advantage of a longer time horizon for a fix then everyone affected will have less dramatic changes with which to deal.

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*The image used for this blog post dates to the 1930’s.  Retirement ages are different now.

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